Pros and Cons of the Minimum Wage Essay
The history of the minimum wage in this country go back almost 100 years to the great depression and FDR. The arguments for and against the minimum wage go back just as far and tend to be emotionally charged. But does this policy, established during the great depression still make sense today? As the economy enters a new, global, era does the minimum wage help or hurt us? Through a review of arguments both for and against the minimum wage, and a review of the research that supports or disproves those arguments this paper hopes to present a balanced non-emotional look at the minimum wage and present a recommendation for how to approach this issue in the future.
INTRODUCTION AND SUMMARY OF CURRENT LEGISLATION/REGULATION
The history of the federal minimum wage in this country can be traced back to the Great Depression of the 1930’s when labor unions unsuccessfully attempted to establish a minimum wage, an effort that was deemed unconstitutional by the Supreme Court. As the Great depression continued an increased demand for employment and few available jobs had the effect of lowering wages beyond their already meager amounts. During his re-election campaign of 1936 President Franklin D. Roosevelt made campaign promises of protecting the American Worker. In 1938 President Roosevelt fulfilled his campaign promise and signed in to law the Fair Labor Standards Act. Part of that act was the establishment of a 25 cents per hour “in order to maintain a “minimum standard of living necessary for health, efficiency and general well-being, without substantially curtailing employment” (History of the United States Minimum Wage | Minimum-Wage.org. Minimum-Wage.org. Retrieved September 14, 2013, from http://www.minimum-wage.org/history.asp).
Since being signed into law in 1938 the federal minimum wage has been increased multiple times by congress passing revised minimum wage acts in response to inflation and the rising cost of living. As of July 24, 2009 the federal minimum wage has been set at $7.25 per hour but it should be noted that during his 2013 State of the Union address to Congress President Barack Obama suggested raising the federal minimum wage to $9.00 per hour. While the federal minimum wage establishes a baseline hourly wage several states have passed state minimum wages that exceed the federal minimum wage, California, for instance has a current minimum wage of $8.00 per hour and a current legislative bill looking to increase the minimum wage to $10.00 per hour has passed the California Senate and is on the governor’s desk waiting for approval. In some instances cities have even gone so far as to establish local minimum wages that exceed both the federal and the state minimum wages. (Example the City of San Francisco with its $10.24/hr. minimum wage exceeding the California Minimum Wage of $8.00/hr. and the Federal Minimum wage of $7.25/hr.).
But today, as it always has, the debate on the minimum wage continues, with labor activists calling for an increased minimum wage (as was recently evidenced in the Fast Food Workers strike for higher pay in late August of this year) while fiscal conservatives predict a more detrimental effect to businesses and the economy in general should the minimum wage be increased.
PROS / CONS AND ANALYSIS OF THE ARGUEMENTS
From the 1930s to present day there has always been an argument as to whether a minimum wage helps or hurts our population and the economy and while the arguments both Pro and Con are numerous, too numerous to fully address in this short paper. We will select the top two arguments both Pro and Con and attempt to analyze their merits in light of current research and statistics. PRO
•Raising the Minimum Wage will Boost the Economy
This argument is based on the belief that there is a large ‘class’ of people in this country who earn at or below minimum wage and that an increase in the minimum wage will lead to an increase in consumer spending and ultimately boost the economy.
But based on Bureau of Labor Statistics data from the current population survey; “The proportion of hourly paid workers earning the prevailing federal minimum wage or less declined from 5.2 percent in 2011 to 4.7 percent in 2012. This remains well below the figure of 13.4 percent in 1979, when data were first collected on a regular basis. (Characteristics of Minimum Wage Workers: 2012. (2013, February 26). U.S. Bureau of Labor Statistics. Retrieved September 15, 2013, from http://www.bls.gov/cps/minwage2012.htm). In looking at this information it becomes apparent that this argument in support of a minimum wage falls a little short. Looking at the percentage of hourly workers that are earning the prevailing federal minimum wage or less only 4.7% of that population fall in to that category. Additionally if you look at full-time vs. part-time workers you will see that “about 11 percent of part-time workers (persons who usually work less than 35 hours per week) were paid the federal minimum wage or less, compared with about 2 percent of full-time workers” (2013, February 26). U.S. Bureau of Labor Statistics. Retrieved September 15, 2013, from http://www.bls.gov/cps/minwage2012.htm). Additional information on this argument was gathered from Dr. Sabia’s research report states “trends common across industries suggest that a 10 percent increase in the minimum wage is associated with a 2 to 4 percent decrease in state GDP generated by lower-skilled industries” (Sabia, J. (2010, December 1). www.epionline.org/studies/sabia_12-2010.pdf. FAILED STIMULUS: Minimum Wage Increases and Their Failure to Boost Gross Domestic Product. Retrieved September 14, 2013, from http://www.epionline.org/studies/sabia_12-2010.pdf). •All Minimum Wage Workers are Poor
Probably the largest argument for raising the minimum wage is that minimum wage workers are poor, and working to support a family. While the sentiment of helping the poor is admirable, it appears this argument is based on emotion rather than fact. Based on the conclusions drawn from the Southern Economic Journal’s 2010 article ‘Minimum Wages and Poverty’; “minimum wage increases between 2003 and 2007 had no effect on state poverty rates. Moreover, the proposal to raise the federal minimum wage to $9.50 per hour is unlikely to be any better at reducing poverty because (i) most workers (89.0%) who are affected are not poor, (ii) many poor workers (48.9%) already earn hourly wages greater than $9.50 per hour, and (iii) the minimum wage increase is likely to cause adverse employment effects for the working poor” (Sabia, J., & Burkhauser, R. (2010). Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor? Southern Economic Journal, 76(3), 592–623). The truth of the matter is that “minimum wage
workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the Federal minimum wage or less. Among employed teenagers paid by the hour, about 21 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over” (Characteristics of Minimum Wage Workers: 2012. (2013, February 26). U.S. Bureau of Labor Statistics. Retrieved September 15, 2013, from http://www.bls.gov/cps/minwage2012.htm). What this means is that individuals who earn the minimum wage are more than likely not poor but living in households where they are a supplemental income. Again turning to the Southern Economic Journal we find that, while “hourly workers are more likely to be poor than are non-hourly workers…just 11.6% of hourly paid minimum wageworkers live in poor households (compared to 11.3% of minimum wage workers in the full worker sample), while 42.6% live in households with incomes over three times the poverty line (compared to 42.3% of minimum wage workers in the full worker sample)…The vast majority do not live in poor households, but instead live in households with incomes two or three times the poverty line” (Sabia, J., & Burkhauser, R. (2010). Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor? Southern Economic Journal, 76(3), 592–623). CON
•Raising the Minimum Wage will lead to higher unemployment
Opponents of the minimum wage argue that increases in the minimum wage will lead to higher unemployment. As a matter of fact, “the experience from the last decade—on both the state and federal level—suggests that increases to the minimum wage have done little to reduce poverty. Moreover, they’ve been actively harmful to some of the least-skilled and least-experienced employees….There’s also strong evidence to suggest that a higher minimum wage would reduce employment among the country’s youth and other less-experienced jobseekers, who already face an unemployment rate approximately three times the national rate” (Saltsman, Michael. “THE IMPACT OF A $9.80 FEDERAL MINIMUM WAGE” Employment Policies Institute. Employment Policies Institute, 1 July 2012. Web. 16 Sept. 2013. http://www.epionline.org/studies/EPI_TheImpactof980FederalMinimumWage.pdf). What policy makers must understand it that there is a balance that is re-adjusted every time the minimum wage is increased where a small segment
of the population benefits but that benefit is offset by the unemployment it creates for youth and other less experienced jobseekers. •Raising the Minimum Wage will Hurt Business.
This argument is overly broad, what constitutes hurting business. The definition can mean anything to anyone. The fact is that small businesses fail every day for a variety of reasons and that “empirical studies have documented other methods by which businesses and markets adjust to minimum wage increases” (Wilson, Mark. “The Negative Effects of Minimum Wage Laws.” cato.org. CATO Institute, 21 June 2013. Web. 16 Sept. 2013. http://object.cato.org/sites/cato.org/files/pub/pdf /PA701 .pdf). The adjustments that businesses and markets make in response to minimum wage increases span the spectrum from relatively minor such as employers cutting worker training and cutting back or eliminating fringe benefits to relatively major adjustments like installing labor saving devises or even the hiring of illegal/undocumented workers. Ultimately left with no other options business will respond by passing increased cost on to the consumers. Supporting this theory is a 2004 “comprehensive review of more than 20 minimum wage studies looking at price effects found that a 10 percent increase in the U.S. minimum wage raises food prices by up to 4 percent and overall prices by up to 0.4 percent…A 2007 study from the Federal Reserve Bank of Chicago found that restaurant prices unambiguously increase in response to minimum wage increases. And a 2011 study of quick-service restaurants found that two-thirds of the minimum wage cost increases were offset by higher menu prices, and that higher prices rather than cuts in employment and hours was the most important channel of adjustment for this type of firm. (Wilson, Mark. “The Negative Effects of Minimum Wage Laws.” cato.org. CATO Institute, 21 June 2013. Web. 16 Sept. 2013. http://object.cato.org/sites/cato.org/files/pub/pdf /PA701 .pdf). While this is a small sampling of the many arguments both Pro and Con they were the most prevalent that I found during the course of my research. What I found was that most of the arguments on the topic of Minimum Wage are based in emotion and colored by political spin making the determination of the facts that much more difficult.
While both sides of the Minimum Wage argument are impassioned I feel, based on the research I have found that increasing the minimum wage does more harm than good. But despite the evidence illustrating the raising the minimum wage does nothing to help the economy at best and is harmful to our economy at worst. It is a policy that will continue in this country for the foreseeable future. It is a social policy that feels good and will garner votes, but, that said as the internet opens up the economy on a global level it is inevitable that a legislated minimum wage must eventually disappear. The global economy and free market practices will eventually strike an equilibrium where wages in ‘developing’ nations will rise and wages in ‘first world’ countries will drop until an equilibrium will be met. Simply put the setting of an artificial minimum wage has, and will continue to price our employee out of jobs that can easily be performed by someone halfway around the world. As the internet and global economy matures those wages halfway around the world will eventually rise but our wages will in turn sink until a midpoint is met.
My recommendation is to stop raising the minimum wage and prepare our economy for the eventual coming of the global economy and lower wages. The longer we as a country continue to set an artificial minimum wage the more substantial the shock to our economy and populous when the global economy sets a true minimum wage.
Characteristics of Minimum Wage Workers: 2012. (2013, February 26). U.S. Bureau of Labor Statistics. Retrieved September 15, 2013, from http://www.bls.gov/cps/minwage2012.htm Minimum-Wage.org. (n.d.). History of the United States Minimum Wage | Minimum-Wage.org. Minimum Wage Rates, History, and Labor Law Info. Retrieved September 14, 2013, from http://www.minimum-wage.org/history.asp Neumark, D., & Salas, J. I. (2013, January 1). Employment Policies Institute | Minimum Wages: Evaluating New Evidence on Employment Effects. Employment Policies Institute. Retrieved September 17, 2013, from http://www.epionline.org/studies/Neumark-01-2013.pdf Sabia, J., &
Burkhauser, R. (2010). Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor? Southern Economic Journal, 76(3), 592â€“623. Sabia, J. J. (2010, December 1). www.epionline.org/studies/sabia_12-2010.pdf. FAILED STIMULUS: Minimum Wage Increases and Their Failure to Boost Gross Domestic Product. Retrieved September 14, 2013, from http://www.epionline.org/studies/sabia_12-2010.pdf Saltsman, M. (2012, July 1). THE IMPACT OF A $9.80 FEDERAL MINIMUM WAGE. Employment Policies Institute. Retrieved September 16, 2013, from www.epionline.org/studies/EPI_TheImpactof980FederalMinimumWage.pdf Wilson, M. (2013, June 21). The Negative Effects of Minimum Wage Laws. cato.org. Retrieved September 16, 2013, from http://object.cato.org/sites/cato.org/files/pubs/pdf/PA701.pdf